November 5, 2018
A Melbourne based financial advice business has been ordered to pay nearly $9 million in penalties after it was found to be offering life insurance advice, linked to personal loans, that was not in the best interest of clients.
The business – Financial Circle – was also ordered by the Federal Court on 2 November to be permanently restrained from carrying on a financial services business, in a case brought by ASIC.
In a statement released after the Court’s decision, ASIC stated that Financial Circle offered personal loans up to $5,000 that could only be obtained if a consumer agreed to receive and implement financial advice, which typically recommended purchasing life insurance and switching superannuation providers.
The regulator claimed that once the advice was implemented, fees were paid directly from the consumer’s superannuation to Financial Circle which also received ongoing commission payments from insurers, and this combined process had led to substantial erosion of superannuation balances.
In handing down its decision to impose a pecuniary penalty of $8,980,000, the Federal Court found that Financial Circle:
- made false and misleading representations and engaged in misleading and deceptive conduct
- engaged in unconscionable conduct
- breached its licensee obligations under its Australian financial services licence to take reasonable steps to ensure that its authorised representatives act in clients’ best interests and provide advice that is appropriate
- breached its licensee obligations under its Australian financial services licence to do all things necessary to ensure that the financial services covered by its AFSL were provided efficiently, honestly and fairly
- engaged in a credit activity without a licence authorising it to engage in that activity.
Financial Circle held an Australian financial services licence to provide advice on life risk insurance and superannuation products, as well as an Australian credit licence to engage in credit activities other than as a credit provider, and also authorised representatives to provide personal financial advice to retail clients via its website.
ASIC, however, obtained a court order in January 2018 which restrained Financial Circle from carrying on any business under either licence until the trial.